KEY TAKEAWAYS:

--Seven factors are highly predictive of vulnerability to a breach.

--They can be measured precisely, using questions that go far deeper than the standard Yes/No questions like, "Do you have a software patching cadence in place?"

--The seven factors can be monitored continuously, providing an up-to-date understanding both to the insurer and to the client.

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Cyber insurance policy application forms are the equivalent of a dating profile. You don’t really know if the person’s picture is up to date, or if what they’re saying about how much they drink and what they do for a living is true. And the cyber applicant isn't necessarily even being deceptive. The person who filled out the profile may not have an accurate understanding of themselves, so how could they give you the complete picture? 

For cyber insurance companies to provide optimal quotes and manage their risk exposure, they need a comprehensive and predictive view of risk -- and it needs to be the same view that policyholders have. 

Questionnaires about insureds’ cyber hygiene and honor system-based notice of circumstance declarations are insufficient. Enter security ratings. As attack surfaces grow, as the number of connected devices increases and as breaches become more prevalent, this continuous, external scanning provides an always-updated view of risk—both of an organization and of its third and fourth parties.

By mapping out digital assets, observing events and settings on these assets and correlating them to cyber incidents, SecurityScorecard assigns an A-F rating and a score of 1-100. Ratings are entirely evidence-based, scored on an underlying and transparent observation from scans of the entire IPv4 space. 

Win-win cyber risk management for insurance providers and policyholders

Together, Marsh McLennan Global Cyber Risk Analytics Center and SecurityScorecard studied how cybersecurity ratings can help insurance companies provide quotes and manage their risk exposure while also offering customers the opportunity to improve their security posture.

We found seven factors that are most predictive of a breach. They are:  

1. Endpoint Security: Looks at the security of an organization’s operating systems, web browsers and related active plugins
2. Patching Cadence: Analyzes how quickly an organization installs security updates
3. Ransomware Score: Measures how susceptible the organization is to a ransomware attack
4. Network Security: Checks public datasets for evidence of high-risk or insecure open ports within the organization’s network
5. DNS Health: Measures the health and configuration of an organization’s DNS settings. 
6. IP Reputation: Uses the SecurityScorecard data, open-source malware information and third-party cyber threat intelligence data-sharing partnerships to assess the reputation of an organization’s IP addresses
7. Cubit Score: Measures a variety of security issues that an organization might have to identify whether it is adhering to best practices

Taking the steps to mitigate risk associated with these factors will significantly strengthen an organization’s security. 

See also: Why Cyber Strategies Need Personalization

How predictive are the seven factors of cyber risk? 

Let’s get nerdy. To discover which factors are statistically significant, we combined incident data from Marsh McLennan with SecurityScorecard’s ratings data, dating back to 2018. We enriched the incident data with firmographic data including North American Industry Classification System (NAICS) industry codes and company revenue. The joint data sets gave us approximately 12,000 unique, globally distributed entities covering a range of revenues and industries. 

The chart below shows the 95% “confidence interval”—meaning that there’s a 95% probability that the results will fall within these parameters—of the “correlation coefficient,” the statistical relationship between two variables, for all of the entities in the study. 

Keeping in mind that a correlation of -1 indicates perfect correlation, these results suggest that the seven factors have strong predictive power. 

As you can see, endpoint security is the strongest predictor of a cyber incident overall. [The Cybersecurity Infrastructure and Security Agency (CISA) recognizes the importance of endpoint security, as well. They issued an alert that identified common exploitation vectors and recommendations for mitigation.]

See also: Cybersecurity Trends in 2023

Security ratings boost cyber resilience

The need for cyber insurance is growing, yet only 55% of organizations have policies. And even though enterprises spend a mean of $2.4 million to find and recover from a breach, only 20% have coverage of more than $600,000. 

It behooves both cyber insurers and their policyholders to take the steps necessary to improve cyber resilience. 

In addition to providing a way to quantify and assess risk, security ratings allow providers to stop asking simple questions that require complex answers. Rather than asking a binary "Yes or No" question like, “Do you have a software patching cadence in place,” they’re able to answer complex questions like, “Do you have any high-severity CVEs in your environment, and if so, how long have they remained unpatched?” This is the level of detail required to underwrite cyber risk in the 21st century, and it’s why security ratings are becoming a bigger part of insurers’ profitable growth strategies.

Security ratings and data offer a transparent, two-sided view that reduces information asymmetry so that all interested parties can better understand and measure cyber risk. 

And being aware of the seven factors most predictive of breaches can inform underwriting strategies and help the industry move toward a more sustainable future. A historical view over at least a year is also important, because most cyber policies are written on a claims-made basis. A data breach or other cyber compromise can take many months to come to light, and it’s smart to avoid underwriting an organization in the midst of one. 

Using ratings in underwriting strategies supports insurance companies to more accurately evaluate cyber risk exposure and inform risk selection decisions. Knowing which way to swipe, as it were, drives an efficient risk transfer market with all interested parties on the same page. This helps make all of us—and the world—safer.

When brilliant young physicist Richard Feynman ran a group of scientists at the Los Alamos Laboratory that developed the atomic bomb during World War II, he embarrassed security personnel by using a screwdriver to routinely pick the locks on the filing cabinets that contained the facility's most sensitive secrets. He might taunt security by leaving the filing cabinet open or might close the cabinet and just leave a note inside for his colleague saying something like, "Thanks for letting me borrow XYZ document." Security finally got the message and installed locks that each had a million combinations -- and Feynman picked those, too.

For years now, hackers have likewise been exposing the vulnerabilities in the world's attempts at cybersecurity. But an announcement by Google last week means that we are headed toward closing one of the biggest security gaps that hackers exploit: passwords. 

The change won't happen overnight, but it will happen -- accelerated by Google's move into what are called passkeys. The technology requires that we merely have physical possession of our phone or computer and can authenticate ourselves to it through face recognition or other biometric measure. The passkey then handles all sign-ins to our apps and websites, using heavy-duty encryption. 

We users will no longer be required to remember all the different passwords that we're pinged to recreate every six weeks or so, based on the host of different standards that different apps and websites require -- which, in practice, of course means that we're constantly resetting passwords.

Companies will see security increase greatly because employees will no longer use passwords that are trivial for hackers to guess -- the four most common passwords currently are 123456, 123456789, qwerty and password -- and will no longer be vulnerable to phishing attacks that trick them into giving up their passwords.

Insurers will likewise be able to breathe a bit easier -- and adjust premiums accordingly -- as the threat via password theft diminishes. And the industry as a whole will do a better job of protecting all the sensitive information it has about customers, information that hackers try so hard to collect. 

The FIDO Alliance has been rolling out passkeys for a year, and an article in Wired says many companies, including PayPal, Shopify, CVS Health, Kayak and Hyatt, already offer customers the ability to access their accounts via passkeys.

But the article quotes Andrew Shikiar, executive director of the FIDO Alliance, as saying the Google move to passkeys is an inflection point. "A company like Google," he says, "enabling this with so many people actually seeing passkey sign-ins, they’ll be more likely to use them elsewhere. And it will also accelerate other companies’ deployment plans and help them deploy better, because we will learn from this as a body."

The transition from passwords to passkeys will now surely enter the chicken-and-egg phase that just about every new technology faces. Even though the benefits of passkeys are so clear, not a lot of companies will feel the need to offer the option soon, because customers aren't demanding that they do so, and customers won't lean into passkeys right away because not enough companies are offering the option.

Glitches will also slow adoption. For instance, when I try to sign up for a passkey via Google, it prompts me to sign into my gmail account, but I don't use my gmail account. I'm not going to start using gmail as my default just to get access to a passkey, so I'll sit this one out for now.

Once the transition to passkeys builds, insurers will -- or at least should -- encourage it by offering discounts to companies that improve their security by mandating a switch. And when we hit the tipping point in perhaps a couple of years, the transition to passkeys should be so rapid that, as FIDO's Shikiar put it, the World Password Day that was celebrated last week is "going to be like World Horse and Buggy Day."

Cheers,

Paul

P.S. Much of Feynman's picking of the supposedly hyper-secure locks just took advantage of combinations that were the equivalent of a password like 123456. Even at what was supposed to be the world's most secure facility, among some of the world's smartest scientists, one in five never changed the simple, default combination that the factory set and that Feynman knew.

As for the rest of the safes, he found that he only needed to be within two of the correct number in a combination for it to work, so the 100 digits on the dial really only meant he had to try 20 possibilities. With a three-number combination, that still meant trying 8,000 combinations on each safe -- except that he learned that he could see the final two numbers in a combination if he could fiddle with the lock while the cabinet was open. And he was eccentric enough that nobody paid much attention as he played with their lock while in conversation. He'd write down the final two numbers for each safe, then just have to try 20 combinations to open it. 

As much as he frustrated security, he came in handy when a document was needed from a filing cabinet whose owner was off the premises. Whoever needed it would just ask Feynman to pick the lock. Feynman would promise to do so, but only if no one watched. He'd pick the lock within a minute, take out a book and read it for half an hour or so, then open the office door and accept thanks for how hard he'd worked to pick the lock and retrieve the document.

KEY TAKEAWAYS:

--Taking the mass amounts of data that customers have and connecting all the dots into a single view is the first thing advanced AI can help insurers to achieve.

--Insurers can then spot industry trends that lead to vulnerability, identify behavioral patterns that point to fraudulent activity and stop wasting time on false leads.

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Worldwide inflation is back -- and interest rates are playing catch up. This affects everyone. Businesses. Consumers. Employees. The government. And financial pressure means there is an increased chance that some will partake in illegal activity.

They may look to claim across business lines, making claims that were never needed in the first place. In some instances, some may even make the same claims twice.

Almost more threatening than customers taking advantage is potential for insider involvement. Those who know the ins and outs of the system are much more dangerous. Employees and customers alike may see these crimes as victimless, falsely believing they are taking from faceless corporations. The catch is that insurance fraud depletes funds and forces honest customers to pay higher premiums, creating victims oblivious to the crime.

These crimes often come in the form of digital minds being used to bypass application controls through fast and clever identity switching. Without the technology to interpret these duplicates and paint a single view across all brands and channels, hidden connections will stay hidden and fraud is made possible.

The FBI estimates that fraud costs the average family between $400 and $700 a year in premiums alone. Insurance companies have access to masses of data that is getting harder to protect as fraud crimes advance and their set of challenges increases.

For one, the unfathomable amount of data that businesses have access to allows risk to hide in the reeds. Insurers can no longer rely on rules-based AI models to detect fraudulent behavior, because digital automation has increased, and data is more complex than ever.

According to the Coalition Against Insurance Fraud, fraud costs business and consumers more than $300 billion a year.

Why is the insurance industry so vulnerable? For one, insurance is not homogenous. The industry changes drastically across sectors and has access to data from various parties. Many big insurers have customers in many industries, but also insure personal assets.

See also: How to Balance CX and Fraud Detection

Insurance companies that operate globally have to deal with the intricacies of the industry around the world -- and data from every corner. Companies need to fit into the landscape of each of their globalized markets but fraud looks different everywhere.

There's only one answer to fight fraud in the current climate: Insurers must arm themselves with the right technology. Centralized and contextualized risk management is how insurers can get ahead of fraud against a backdrop of economy instability and crime.

Paint a single view of your customers

Taking the mass amounts of data that customers have and connecting all the dots into a single view is the first thing advanced AI can help insurers to achieve.

One streamlined data foundation will give insurers a contextualized view of the business. It allows them to:

1. Spot industry trends that lead to fraud vulnerability or security weaknesses -- If insurers can look at their customers as a single entity against the backdrop of their industry, they'll be able to compare notes on competitors and better protect their customer.
2. Identify behavioral patterns that point to fraudulent activity -- Individual and group behavior is becoming harder to identify as fraud technology advances. Picking out patterns from behaviors across companies will allow for bigger-picture insights.
3. Clarify the difference between opportunity and risk within these behavioral anomalies -- Bigger-picture insights can actually lead insurers to being more precise. Insurers can stop wasting their time on outliers and start seeing risk more clearly.

Once companies are able to sift through data in this single-view contextualized way, they'll be able to mitigate risk. The most valuable thing that new technology can give insurers is the ability to predict. Being proactive rather than reactive is incredibly important in times like today.

See also: How Blockchain Can Disrupt Insurance

Ease decision making

Given that insurance fraud and the advancements in economic crime changes constantly, it's difficult for individual business leaders to keep up.

The only way to fight advanced fraud and financial crime is by applying more advanced tech. Decision intelligence does just this by allowing insurers to focus on client services and not spend countless hours prying through potential risk anomalies and figuring out how to act. Intelligent platforms are available to make the decisions efficiently and accurately.

Global insurers must rely on intelligent platforms to make the difficult, high-level decisions that come from extortionate amounts of data. Providing humans with the right data and right technology allows them to make the right decisions. AI is not making the decisions, but automating processes to empower humans to make accurate and timely choices.

Insurers will find themselves less and less capable of facing fraudulent activity if it's concealed within a dark cloud of difficult decisions and data -- it needs to be uncovered.

The future of fraud is here, but it brings the future of fraud protection, too. As criminals are using increasing complex and sophisticated techniques and the economic climate continues to worsen, insurance companies must arm themselves with the right technology to win the battle.

KEY TAKEAWAYS:

--To combat the misperception of insurance as a commodity, agents need to start by taking an active role in the buying process and educate customers about the nuances in policies.

--Agents must get customers to focus on the risks they face and the appropriate coverages, not on the price.

--Finally, agents need to individualize their sales approach -- focusing less on serving lots of clients and more on serving each client well.

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Although insurance was once governed by relationships, product knowledge and market access, it has evolved into an industry driven by price and the simplicity of the service provided. Many consumers now view insurance as a mere commodity. In fact, each policy and carrier is unique in the coverage they provide and in their underwriting and claims processes. But how can insurance agents challenge the perception of insurance as a commodity?

They must educate consumers, emphasizing the differences in policy coverages. Leveraging their product knowledge in tandem with technological developments, insurance agents can solidify the need for an expert-level resource in providing these complex product offerings to consumers. 

Why Is Insurance Viewed as a Commodity? 

Multiple factors have contributed to the perception of insurance as a commodity. For starters, digitization allows consumers to purchase coverage online directly from a carrier. Without a dedicated insurance agent consulting on which coverage is right, consumers naturally focus on price. 

Additionally, the insurance industry itself has been pushing price as the sole distinguishing factor. Consider the advertising campaigns for Geico and Progressive, two industry titans with a combined market share of 25%. Geico’s tagline, “15 minutes can save you 15% or more on car insurance,” has been embedded into our brains through advertising. Progressive’s “name your price” advertising further cements the idea that insurance is a commodity. 

How Can Agents Challenge the Perception of Insurance as a Commodity? 

Having consumers view insurance as a commodity might be good for direct writers, but it doesn’t do much for independent agencies. Here's how agents can reshape the narrative: 

Play an Active Role in the Buying Process 

As an insurance agent, your customers rely on you. While it might be tempting to service as many customers as you can as quickly as possible, it is more beneficial for both your business and the consumer to craft a service approach personalized to each customer.

Your main selling points are your customer service and expertise. Lean into these attributes by guiding your customers through each step of the buying process, showing them why they made the right decision in using an agent rather than purchasing coverage online directly through a carrier. 

Educate Your Customers 

Educating your customers on the differences between policies is crucial. While big carriers have spent millions to convince consumers to focus on price, your job is to help your customers understand the additional factors at play. Your customers might think they know what they need, but a whopping 60% of consumers admit they don’t do any research before obtaining coverage.

What's the best way to provide context and information to your customers? Well, a conversation goes a long way toward understanding their specific needs and creating an opening for offering advice. Creating visual aids and providing easy-to-understand brochures on key policy differences can help. 

See also: Selling Insurance in a Commoditized World

Focus on the Risks 

67% of consumers are willing to purchase insurance from organizations other than insurers. This is a major problem, as consumers who purchase coverage online do not receive the same level of risk analysis as is provided by insurance agents. If an accident occurs, your customer will be grateful their agent spent the time ensuring their needs were met. By focusing on the risks facing your customers, you help them understand that insurance is not about getting the best deal but rather about obtaining the best coverage. 

Individualize Your Sales Approach

21% of consumers say insurance providers do not tailor their customer experiences. Don’t solely rely on sales scripts or rehearsed talking points. Rather, get to know each customer on a personal level. Chances are new customers aren’t well-versed in the different policy coverages available, and you can provide expert advice that no algorithm could ever replicate.

What Does the Future Hold for the Insurance Industry? 

People will always need insurance. It is what allows us to conduct business and engage in many aspects of our daily lives. And, no matter how much money carriers spend to advertise their low prices, one fact will never change; People need agents to help guide them through the intricacies of the insurance industry.

Your job as an insurance agent is very important. You ensure your customers are protected in the event of an accident. You ensure they make it out okay in whatever situation they are facing.

It may at times seem that the industry is trending toward further automation, but by providing expert-level product knowledge and engaging with customers you can leverage technology in a way that enhances the insurance purchasing experience rather than driving it to the lowest common denominator: price.

KEY TAKEAWAYS:

--Adding solar panels may increase the value of a home by tens of thousands of dollars, creating a need for more coverage -- but some policies specifically exclude solar panels.

--Another conversation to have about solar panels has to do with where they will be installed — detached structures typically are covered only at a fraction of the main structure’s value.

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As homeowners look to take advantage of the new tax credits for green home improvements, insurance professionals should see this as an opportunity to show them what insurance implications those upgrades may hold. 

Solar panels, battery arrays, wind turbines and even LEED certification could all have impacts on a homeowner’s policy, depending on the policy language, and communicating those nuances will be key to maintaining positive customer relationships.

The first basic rule governing insurance to communicate regarding environmental home upgrades should be that they tend to be the same as any upgrade for the home — if it is permanently attached to the home, it should automatically be covered by the homeowner’s policy. But that doesn’t mean installation isn’t a prime opportunity to open a communication channel with the customer. 

One reason is that many homeowners may not realize that their upgrades will increase the value of their homes. A solar array could add tens of thousands of dollars to the home’s value, for example. If the homeowners’ insurance isn’t increased to match, that may mean that in the case of a disaster or loss, they could end up underinsured and without enough coverage to cover the home and the new energy efficient upgrade in a total loss.

Nobody wants to be the agent on the other end of that call explaining why the policy is insufficient to rebuild.  

Another reason to talk to the customer is that some policies specifically exclude solar panels. Some lines are excluding some energy-efficient equipment, whether that is because they could get beat up in a hailstorm or because their raised profile could cause them to peel off in a windstorm. Explaining those limitations to the customers is essential so they know what is covered and, more to the point, what is not. 

Lithium-ion, whole-house batteries are a newer addition many homeowners are choosing. These allow the solar systems to operate even after a power outage, which would render other solar systems inoperable, because in a power outage most solar systems shut themselves down so they don’t back feed electricity onto the grid and potentially endanger line workers trying to restore power. But with batteries, the power can be diverted away from the grid and into the battery. 

Then these batteries can feed that power back to the home at night, serving the role that whole house generators play after a disaster, and also banking energy during normal times. 

See also: Homeowners, Renters Are Overlooking Risks

But with new risks comes unknowns. As batteries become more common, it wouldn’t be surprising to see some policies begin to exclude them as potential risks, as well, at least until more risk profiles and loss data comes back on them, so savvy professionals should keep their ears to the ground to see if these limitations do indeed emerge. 

Another conversation to have about solar panels has to do with where they will be installed. If the customer chooses to install them on a detached structure, such as a shed or a detached garage, they will only be covered by that portion of the homeowner’s policy, rather than the main structure’s coverage, meaning it will be subjected to a lower coverage limit and may not have adequate coverage to replace them in a loss. That is a nuance most policyholders won’t pay attention to — detached structures typically are covered only at a fraction of the main structure’s value. 

And if the solar panels are free-standing, like in a field, they almost certainly won’t be covered by a typical policy, because they aren’t permanently attached to the structure. The same applies to wind turbines, which are almost never attached to the home, so this is a real educational opportunity early in the conversation to prevent confusion. 

Federal tax credits are available for upgrading exterior windows and doors using energy-efficient materials. While the contractor is doing that work, the homeowner might do well to also ask whether there are options that might help with their homeowner’s premium. Things like storm-resistant windows or closable storm shutters aren’t strictly covered by the tax credits, but adding them onto the project might not be a huge cost addition with the contractor already working on the energy-efficiency project. 

Federal tax credits only apply to renovations, but if the client is building new construction, one option is to opt for is a builder who is certified under the Leadership in Energy Efficient Design by the U.S. Green Building Council. LEED-certified homes use far less energy than other homes, and a handful of policies are offering LEED certification discounts — often 5% off the annual premium. 

Both homeowner and business customers can also be steered toward policies with a green coverage rider. These are add-on coverage options that pay an additional amount after a claim to allow for the rebuilding to be done with environmentally friendly components and methods. With this rider, building materials will be recycled rather than landfilled, extra insulation will be used and sustainable materials will be sourced — all for an added premium, of course. 

Congress put some significant money behind green renovations when they passed the Inflation Reduction Act, and savvy insurance professionals can use those incentives as conversation starters to show where energy efficiency overlaps with the insurance world. 

The insurance industry is at a turning point; while new startups bring innovation, established carriers struggle with limited resources and skills. PURE Insurance has overcome these challenges by following specific technology guidelines for its trusted partners, allowing them to focus on expansion and innovation. PURE’s CIO and OneShield’s SVP share strategies in their eBook resulting from their 17-year technology partnership. From Startup to Market Leader: Guidelines for Future Proofing Your Technology is a valuable resource for insurance startups and carriers looking to transform their technology and achieve growth. 

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Sponsored by ITL Partner: OneShield

For this month's ITL Focus, on customer experience, Editor-in-Chief Paul Carroll talked with Jay Baer, a guru on the topic whom Paul has known for years. Jay has consulted frequently on the topic, has written any number of books and is a sought-after speaker. He is always insightful and never dull.

ITL:

Would you start us off by walking us through what you see as the most important components of customer experience, and how insurers stack up on them?

Jay Baer:

Some insurance organizations like Lemonade are really built for speed – like the time they processed a claim in three seconds using AI. Then you have your legacy insurance folks, who are certainly not doing that, even though research suggests that speed is now the most important criterion of customer experience. Two-thirds of customers now say speed is as important as price.

A lot of the trends that we see, whether it's work from home or employees demanding flex timing and parental leave, are actually the same trend, which is that we care more about time and how we spend it than we used to.

Empathy is also sometimes not the strong suit of the insurance business. Personalization is important, too, and certainly some insurance organizations do a better job than others of treating policyholders as if they are unique individuals and not just a policy number.

The fourth one is clarity. Customers just want to know what is going on. And this is an area where insurance really has some improvements to make. In my work, I call it the uncertainty gap. The uncertainty gap is the difference between what you know about your business and what the customer knows about your business.

I think insurance and healthcare probably show the two biggest uncertainty gaps. Insurance professionals know a lot about how insurance works and why things are done a certain way and actuarial tables and all of those things, and your average insurance customer, whether it's consumer or business, doesn't know anything about anything.

That gap creates a lot of anxiety, but most insurance companies, whether they're big companies or even individual brokers, generally take the tack of, “Well, it's pretty complicated, so we're just not going to tell you, because you won't understand, anyway.”

ITL:

I do think insurance has some inherent issues just because it’s so complicated, but I agree that Lemonade has done a good job of putting a pleasant front end on all the contractual language. What should other insurers be doing?

Baer:

You need to create what I call a “coveted customer” experience. That buys you something that we routinely overlook but that is incredibly important. It buys you the benefit of the doubt. Because in every business – it doesn't matter if you're an insurer or an airline or a restaurant -- eventually something's going to go less than perfectly. You don't want that mistake or inadequacy to be the straw that breaks the customer’s back, making them say, “I never did like those guys.” What you want, instead, is, “They’ve overdelivered so often in the past that I'm going to overlook this mistake.

The “coveted customer” experience establishes a relationship where price and perfection are no longer required. But you've got to exceed expectations often enough and palpably enough to create that experience.

ITL:

You’re on a roll….

Baer:

Customer experience doesn't actually exist. It's fake. We made it up. We treat customer experience in business as if it's a knob you can turn or a switch you can flick. It is often referred to as if it is a holistic business construct, but customer experience is not a thing.

It is ALL of the things. It's arguably hundreds of different decisions that you make in your business every single day.

People toss out advice: “You should be better at customer experience.” Well, yeah, but that's useless advice.

If you think big about customer experience, it's never going to work. You have to, instead, think small. You have to focus on really specific things that you're going to stop, start or change in your business. And if you do enough of those stops, starts or changes, eventually you'll get to that “coveted customer” experience.

That buys you the benefit of the doubt, and that's how you actually grow your business.

ITL:

I love that. Does an example pop to mind of an especially useful stop, start or change someone has made?

Baer:

There’s a moving company in Texas that had a bunch of unhappy customers. It was a real puzzle to their owner. Some moving companies are just okay, as you know, but these guys really had it together, so why were there all these complaints?

We analyzed the complaints and realized that most of the unhappiness wasn't actually about moving. It was about lack of understanding. The customers didn't know what time the guys were showing up, and they didn't know they had to trim that branch over the driveway to make room for the truck. They forgot to pack the dishes the right way. They didn’t know the cat shouldn't be there. Etc.

The owner thought, “That’s weird, because we already told them all this stuff.” And he was right. When you book a move with them, you get a welcome kit. A week later, you get an email. On the day before, you get a text message. Stuff like that. The owner thought, “We already told them all this stuff. And now they're mad that they didn't know it?”

Then he realized something that I think is very germane to the insurance business. He realized: “100% of his customers are moving.” Nobody ever says, “You know, the time that I was really on the ball was that week that I moved.” No, you're super stressed out during a move.

The same thing applies to insurance. Nobody is at their best when buying insurance. They aren’t poring over their insurance communications to make sure they understand every nuance.

What the mover did to fix his problem was to call all the managers together and say, “Okay, here's the plan. Customers are either not reading our stuff or they're just skimming it because they have other things on their mind. From now on, we double everything. We send two welcome kits. Instead of one email, we send two. Instead of one text message, we send two.”

And all the complaints went away.

I asked the owner, “Don't people get annoyed with all that communication? He said, “Jay, I've never had a customer say, ‘Please stop informing me.’”

There's a lot of truth to that. If it feels like you're overcommunicating, you're probably communicating just right.

ITL:

That’s great advice: Communicate, communicate, communicate.

Any final words:

Baer:

The time to double down on customer experience is in an uncertain economy. Most of your competitors still look at CX as an expense. When they get nervous about the economy, they start thinking about how they can cut expenses at the margins, and that can damage customer satisfaction. By my way of thinking, an uncertain economy is the time you do the opposite. It’s easy to spend on customer care when everybody is making money. It takes real guts when people aren’t sure if they are. But on the back end of that economic uncertainty, you're going to have a level of customer loyalty that they simply don't.

ITL:

Thanks, Jay.

KEY TAKEAWAYS

--AI and advanced analytics can help to identify claims that may be at risk for litigation or other escalation, before they get out of control.

--Where adjusters in traditional claims management systems revisit cases from time to time, AI is at work 24x7.

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Inflation is very much in the news these days, as the cost of virtually everything seems to be on an upward trajectory.

From an insurance industry perspective, though, inflation is a multifaceted problem; in parallel with broader economic trends, social inflation is driving up the cost of claims, pushing premiums higher, making it more difficult to accurately price risk and leading to higher costs for virtually everything we buy.

Consider the trucking industry. In 2021, jurors in Florida awarded a record-setting $1 billion to the family of an 18-year-old tragically killed in a multistage accident involving two trucking companies. Needless to say, that verdict made headlines, but it's not an isolated incident.

Between 2010 and 2018, the number of so-called nuclear verdicts or megaclaims increased by an alarming 235%. During that same period, the average seven-figure verdict in the trucking industry grew from $2.3 million to over $22 million, a nearly tenfold increase in just eight years. Megaclaims in the trucking industry are getting a lot higher, and there are a lot more of them.

This level of inflation is unsustainable. It's driving up premiums, and the costs must inevitably be absorbed into the prices that trucking companies charge their customers to transport products. Virtually every product we buy at the local supermarket or big box store is going up in price, partly because sellers must absorb the cost of higher premiums. For consumers, it's a hidden cost, but we're all paying for it.

What's Driving Social Inflation?

This trend can be attributed to four root causes: a high-stakes litigation environment, shifting public opinion fueled by increasing divisiveness, medical cost inflation and newly emerging risks such as public health emergencies and geopolitical strife.

High-stakes litigation has played the most prominent role. Plaintiffs' attorneys have stepped up their game, using every tool at their disposal to aggressively push for higher verdicts. Plaintiffs' attorneys are also investing heavily in tools like advanced analytics, doing everything they can to ferret out intelligence that might tip the scales in their favor.

Courtroom strategy has changed, as well. Plaintiffs' attorneys have shifted away from trying to win the sympathy of jurors, finding that they can often be more successful by appealing to a jury's inherent anger and distrust of large corporations. Fear appeal is undoubtedly playing a role in nuclear verdicts.

Another factor is the industrialization of claims litigation. In recent years, a new class of businesses has emerged, offering advance payments to plaintiffs in exchange for rights to recovery. That raises the stakes considerably, combining a powerful profit motive with a highly organized class of professional investors, attorneys and case managers. According to Bloomberg, the litigation funding industry is currently managing $12.4 billion of investments. Well-organized attorneys are industrializing the litigation process, and smart money is expecting a return on those investments.

Medical cost inflation is also a significant factor. New drugs and advances in medical treatment are pushing prices higher, while the costs of malpractice and liability insurance are exerting upward pressure, as well. Recently, a shortage of skilled labor has also contributed to medical inflation.

See also: What to Do About Rising Inflation?

What Can Insurance Carriers Do About Social Inflation?

Let's take a look at what carriers can do about this. For starters, they can step up their game with respect to intel. Artificial intelligence (AI) and advanced analytics can help to identify claims that may be at risk for litigation or other escalation.

Every claim is a moving target, of course, evolving as a claimant's medical condition changes, as attorneys get involved and even as public opinion shifts. Where traditional claims management methods require adjusters to revisit each case periodically, digesting new material as it becomes available, technology offers a more agile (and far less tedious) alternative. AI is at work 24x7, monitoring incoming claim data in real time, alerting case managers promptly and increasing the likelihood of resolving high-risk claims without ever going to court.

AI technology also offers a way to help prevent claims from escalating in the first place. Matching injured workers with the best health care provider for their specific case, for example, yields a win-win-win situation. Workers achieve better medical outcomes, employers save money and get valued people back to work faster and carriers resolve claims at a lower cost.

Public policy may have a role to play in stemming the tide of social inflation, but it takes considerable time and effort to produce results through legislation. In the absence of widespread public awareness and pressure, political solutions to the problem seem unlikely.

That leaves individual carriers to repeat the mantra, "work smarter, not harder." Innovation offers a path to dampen the impact of social inflation, and AI technology has delivered very impressive results to date.

As first published in WorkCompCentral.

KEY TAKEAWAYS:

--Today, resources are misallocated -- 90% of innovation money goes toward maintaining existing systems, thus only 10% goes toward innovation.

--Insurers need to start piloting an innovation-forward industry, using tools such as modular systems, automated underwriting, advanced analytics and API integration with third-party systems.

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For every innovation, product release or software update, consumers and businesses become that much more digitally enabled… and digitally demanding. It’s a trend that may cause client expectations to eventually outpace the range of products and services offered by insurance providers – that is, if they don’t do anything to accommodate.

Although some insurers may be hesitant to throw all their chips in with digital strategies, leveraging technological innovations can indeed modernize the insurance industry. Nuanced digital tools have already begun filling the gaps created by skills shortages and are gradually becoming more mainstream. Yet many insurers still prefer to maintain their legacy systems.

Now is the time for traditional insurers to overcome their risk-averse legacy practices and scale up the industry’s gallery of startup solutions. Those that wish to retain their clientele within the rapidly changing market would do well to explore the options.

Reluctance to Innovate 

Although some insurers have adopted open digital insurance practices, such as many of those operating in Nordic countries, many others in the U.S., for example, are unsure which tech-based solutions to invest in – the array of choices is vast: centralized management systems, sales automation tools, self-service portals and mobile apps, among others. Even though the desire to change may be there, the rate of digital technology adoption among independent insurance agencies (44%) is still not where it might be. 

Part of the problem is a misallocation of resources. According to Deloitte, insurers direct 90% of innovation resources toward updating legacy systems – only 10% are allocated toward more transformative projects like product development or novel business models. 

Insurers are wary of the risks of innovation rather than eagerly anticipating the pain points that could be alleviated. But considering that market disruption is already on the horizon – not to mention the growing customer expectations for more cloud-native products and digitized services – this resistance may be incredibly counterproductive. 

The second part of the problem can be traced to insurers’ uncertainty around the compatibility of transformative new-age tech with their existing insurance structures. Many innovative ventures have failed due to the siloed nature in which they released their solutions, which were dislocated from other teams and systems that, in reality, they should have been integrated with.  

See also: Insurance 2030: Implications for Today

Tech Upgrades

What’s the answer? Insurers need to start piloting an innovation-forward industry – one that clearly demonstrates the high levels of usability and connectivity already available across other modern industries. Innovative methods and tools like modular systems, automated underwriting, advanced analytics and application programming interface (API) integration with third-party systems will propel insurers forward and sharpen their competitive edge to thrive in this rapidly evolving digital economy. 

Insurers should consider adopting the following measures so that they may future-proof themselves from getting squeezed out of the market:

1. Take on a modular system encompassing role-based front ends and workflow, with near-real-time connections to data from clients and products.
2. Automate rules-based underwriting and risk triage.
3. Upgrade analytics processes to link claims, policies and risk engineering. 
4. Administer cost-effective approaches when building digital products while remaining agile vis-a-vis connectivity with existing insurance structures. 
5. Leverage plug-and-play APIs and integrations with third-party systems. 
6. Differentiate software between back-end and front-end systems – the former should be robust, static and scalable with no room for compromises, and the latter should be customer-centric, omnichannel and data- and AI-driven. 
7. Align capabilities with respect to attracting, acquiring, retaining and rewarding customers across B2C and B2B sectors, while providing real-time data for insurance portfolios and the various types of insurance providers. 
8. Develop channels to interact with clients (e.g., receiving product feedback).  

Risk It for the Biscuit

The longer insurers wait to digitize their systems, the more they will frustrate customers, and the more they will hurt their bottom lines. 

The insurance industry can address many of its challenges by encouraging insurers to accept greater risk in adopting innovative technologies and properly integrating them into active systems. After all, risks can be mitigated by assigning each new onboarded solution with a specific goal or deliverable outcome that addresses insurers’ critical needs, aspirations or pain points. 

As digitization expands into the next decade, technology will serve as the industry’s best insurance policy.